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By Bloomberg

Mitsubishi Estate Co., Japan’s biggest developer by market value, said it may achieve higher profit than previously forecast because of buoyant rental income and the recent sale of a building in Tokyo.

Mitsubishi Estate has been seeking rental increases of 5 percent to 10 percent this year and expects at least some of its tenants to agree, said Chief Executive Officer Hirotaka Sugiyama. The company’s 159 billion yen ($1.35 billion) sale of the former Mizuho Bank headquarters building in Marunouchi to Mizuho Financial Group Inc. in November will also be positive for its earnings, he said in an interview in Tokyo.

“For this year, we can probably bring it up a little higher,” Sugiyama said, referring to the company’s operating profit forecast of 147 billion yen for the year ending March 2015.

The office leasing and development business, which accounts for more than 70 percent of Mitsubishi Estate’s profit, has benefited from Prime Minister Shinzo Abe’s policies intended to boost Japan’s economic growth. As the commercial property market has rebounded and vacancy rates have fallen, landlords have been able to raise rents. The current Tokyo office vacancy rate of 5.55 percent is the lowest since January 2009.

Mitsubishi Estate already raised its forecast on Oct. 31, saying it expected 147 billion yen of operating profit in the year ending March 2015, up 9.7 percent from the previous forecast. Even so, the operating profit after that revision would still be 8.8 percent lower than in the fiscal year ended March this year.

At the time of the October revision, Mitsubishi Estate said it expects its Japanese rental income to increase by an average 1.5 percent for the six months to March 2015.

Marunouchi Redevelopment

Shares of Mitsubishi Estate rose as much as 1.3 percent, reversing an earlier decline, and traded 0.5 percent higher at 2,453.5 yen as of 1:28 p.m. in Tokyo.

Mitsubishi Estate’s redevelopment plans for Tokyo’s upscale Marunouchi district, where it it the largest landlord, will allow the company to increase the floor area of buildings as well as charge higher rents, Sugiyama said.

Redevelopment can increase the floor area of a building by 50 percent and boost the rent to more than 40,000 yen per tsubo, he said.

That compares with assumed achievable rent of 32,150 yen per tsubo on average for prime office space as of November in Tokyo, according to real estate brokers CBRE Group Inc. A tsubo, a standard measure of area in Japan, is 3.3 square meters or 36 square feet.

Marunouchi is the most expensive business district in Japan and home to global financial companies such as JPMorgan Chase & Co., UBS Group AG and Citigroup Inc.

The redevelopment by Mitsubishi Estate and other companies will lead to an oversupply of office space in 2017, according to an estimate by real estate brokers Jones Lang LaSalle Inc. Even so, Sugiyama said he is confident the company will be able to maintain the value of the central Marunouchi district.

“It’s about the attractiveness of the area as a whole,” said Sugiyama. “Even with an oversupply, our tenants will recognize the value of Marunouchi.”